Community College vs. Student Loan Debt

One of the articles in our special section on Money Through the Ages (produced in partnership with the public radio program Marketplace Money) is about an 18-year-old high school senior with a choice to make. Should he go into at least $6,500 in debt each year to attend a private college or university like Juniata or Clark, or is he better off working part time and attending community college for two years before transferring to one of those colleges?

Zac Bissonnette, the author of Debt-Free U and a senior in college himself, encourages students and families to take on as little debt as possible. He urged the subject of our profile, Mino Caulton of Shutesbury, Mass., to consider the University of Massachusetts, though Mr. Caulton was worried that he wouldn’t get enough individual attention there.

Mr. Caulton is leaning toward community college, and at the risk of leaning too heavily on what Mr. Bissonnette refers to as the “tyranny of the anecdote,” I’d be curious to hear from young adults who did (and did not) choose community college. How did it work out for you?

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MORTGAGES; Taking Custody of the Loan

DIVORCED homeowners wrangling with the task of removing a former spouse's name from the mortgage after buying out his or her equity stake in the marital house may think that refinancing is the only choice.

There is another, little-known option that can avoid refinancing and its costs, which generally run 3 to 6 percent of the outstanding loan principal, according to LendingTree. You simply ask your lender to remove the former spouse's name, leaving the loan note in your name only.

The problem is that not all lenders or mortgage servicers offer this option, known as release of liability. The lenders and servicers that do will most likely run a separate credit check on you -- requiring, for example, that you meet minimum credit scores (typically from Fannie Mae, the giant government buyer of loans), and ensuring that you are current with the monthly mortgage payments. They may also require that any investors in the loan, after it is sold off, agree to the deal.

And if you are ''under water,'' and owe more on the mortgage than the home is currently worth, this process is not an option.

''This is a common and often messy business,'' said Jack Guttentag, a mortgage expert and emeritus finance professor at the Wharton School of Business at the University of Pennsylvania. ''Lenders seldom have a reason to take a co-borrower's name off the note.''

But, he added, if a homeowner can prove that he or she can afford the payments and meet the required credit criteria -- typically those of the investor in the loan -- then release of liability may work.

Neil B. Garfinkel, a real estate and banking lawyer at Abrams Garfinkel Margolis Bergson in New York, says the lender ''will require the borrower to prove that the borrower is able to support the monthly payments without the co-borrower spouse,'' typically through monthly bank statements, annual tax returns and investment statements.

Having the name removed protects the credit of both parties, actually. If the former spouse failed to pay other debts, a lien could be placed on the home, and if you were delinquent on the mortgage payments, your former spouse's credit could be hurt.

Most divorce settlements stipulate one of two outcomes for marital property. Either the house must be sold, or the person wanting to keep the property must buy out the other's share, usually within months of the date of the settlement, and get the other party's name off the mortgage -- either through refinancing or a release of liability -- typically within a year.

Under the second option, the former spouse signs a quit-claim deed at the divorce settlement, relinquishing his or her claim to the property. But while that action takes the former spouse off the house's title and leaves it in one name only, it does nothing to remove his or her name from the actual mortgage.

Lenders or servicers typically charge $300 to $1,000 to execute a release of liability and require the property owner to pay an additional, nonrefundable application fee, typically $250 to $500. The process can take from 30 to 90 days, mortgage experts say.

One mortgage servicer, PHH Mortgage of Mount Laurel, N.J., requires that a homeowner with a loan sold to Fannie Mae have a minimum FICO credit score of 620 and a debt-to-income ratio of 50 percent or below (the ratio measures the amount of gross monthly income that goes to paying off all debts).

Still, a lender or servicer ''generally has no obligation to release one of the borrowers,'' Mr. Garfinkel said.

But Mr. Guttentag says homeowners may have one point of leverage. He suggested that qualified borrowers not accorded the release they seek tell their servicer or lender that unless a release of liability can be executed, the borrower will refinance the mortgage -- at another lender.

''In such cases,'' he said, ''the servicer might agree to do it.''

CHART: INDEX FOR ADJUSTABLE RATE MORTGAGES: 1-year Treasury rate (Source: HSH Associates)

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Out of College, Not on Her Own

COURTNEY McNAIR has been out of college for three years. She has a degree in political science and Spanish. She also has the same address she had in high school and the same bedroom in her parents’ Los Angeles home. Not to mention $40,000 in student loan debt, $2,000 in credit card bills and $10,000 left to pay on her red 2008 Chrysler PT Cruiser.

And this is what she worries about: winning the lottery.

“I’ll just spend it all and have no idea where it went,” said the 25-year-old graduate of Wellesley College.

That would be a luxurious problem. At the moment, she’s taking out more loans for graduate school in an effort to pursue a career as a special education teacher.

So someday she’ll have a steady income. Her biggest problem, however, is getting a better grip on where her money goes. She doesn’t know how to budget and hasn’t put much thought into her financial future. “I’ve always hated money; I’m scared of it,” said Ms. McNair.

After she graduated in 2008, Ms. McNair took the first job she was offered, as a match coordinator at the Los Angeles Boys and Girls Club. It paid $25 an hour, but she didn’t like working in an office. She switched to tutoring high school students, for $13 an hour, three hours a day. “That was enough to, I guess, swing it for a while. Make my car payments, pay my phone bill and all that other stuff.”

Now she’s tutoring and working part time for a foundation started by her parents, who are both lawyers. The foundation provides low-cost legal services for students with special needs and eventually hopes to open a charter school. Her father, Greg, pays her $13 an hour. Her parents don’t charge her rent, but she has to do the grocery shopping and make dinner for her family four nights a week. She’s also responsible for all expenses related to her terrier, Queen Anne.

The McNairs have three other daughters, including a 22-year-old who lives at home. But she didn’t want to end up like her sister, so she didn’t take out student loans.

Margaret McNair, Courtney’s mother, said her children had expectations different from hers when she finished school. “When I was in my 20s, I couldn’t wait to get out there,” she said. “Nobody could hold me back.”

A 2009 survey by CollegeGrad.com found that 80 percent of college graduates moved back in with their parents. And Courtney said that many of her friends were back in their old bedrooms, too. “So it doesn’t feel like, oh my gosh, I’m the only one still here. I figure if I’m 30 and living at home, there’s something wrong.”

Without better budgeting skills, however, she could easily end up having to stay in her childhood bedroom. Ms. McNair decided about a year ago that she wanted to teach special education students. For that, she needed to return to school. So she’s taking classes at California State University, Los Angeles.

According to PayScale.com, the starting salary for a special-education teacher is $29,000 to $40,000. After graduate school, Ms. McNair will owe roughly $50,000 in student loans, with payments of over $500 a month.

Lauren Lyons Cole, 29, is a certified financial planner in New York City. Her concern about Ms. McNair’s situation is the risk of taking on more loan debt than she will earn when she graduates. “I see that so many young people don’t understand that $40,000 a year, $50,000, even $60,000, it just really doesn’t go far,” she said.

But to Ms. McNair, that kind of salary seems comparable to winning the lottery. Asked about her dream financial situation, she replied, “I’d find a job that paid me goo-gobs of money to do what I love.” Her definition of “goo-gobs”?

Something around $25 an hour. Or $52,000 a year.

Ms. Cole said Ms. McNair was wise to pursue a graduate degree in a field where there were jobs. But she was underestimating the salary she should ultimately shoot for, given her education and skills. “Nobody’s telling her that she has to work on Wall Street or sell her soul,” Ms. Cole said. “But the reality is life is expensive.”

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